Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I had a LL.M Taxation. I needed only to don my cape…. taxgirl® was born. Today, I live and work in Philadelphia, PA, one of the best cities in the world (I can't even complain about the sports teams these days). I landed in the City of Brotherly Love by way of Temple University School of Law. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. I even took the lead on a successful audit. At audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax.

Putin On The Blitz: Football Billionaire Says Russian President Took Super Bowl Ring

The tale of New England Patriots owner and billionaire Robert Kraft and his XXXIX Super Bowl ring has taken a bizarre turn.

At Carnegie Hall’s Medal of Excellence gala at the Waldorf-Astoria awards ceremony on Thursday, Kraft discussed the history of the ring, claiming that it was stolen by Russian President Vladimir Putin during a visit to St. Petersburg in 2005. Kraft told the crowd, about the ring:

I took out the ring and showed it to [Putin], and he put it on and he goes, “I can kill someone with this ring.” I put my hand out and he put it in his pocket, and three KGB guys got around him and walked out.

After the Russian leader walked out with the ring, Kraft alleges that he received a call from the Bush White House, saying, “It would really be in the best interest of US-Soviet relations if you meant to give the ring as a present.”

Kraft says that, at the time, he acquiesced at the advice of the White House and issued a statement that it was a gift. Now, eight years later, he’s changing his story publicly – and says he wants the ring back.

What happened to the ring is a little strange, no matter which version of the story you believe. But the story also carries with it some serious tax consequences. You see, this isn’t just a little trinket that two powerful men are fighting over. It’s a legendary ring, made up of 124 diamonds and weighing in at 4.94 carats. Each year, only an exclusive group of people have the privilege of owning one – and that’s worth something.

The official value of the ring was listed at more than $25,000 in 2005, the year that the ring went missing. The rings can be worth much more depending on the owner and the circumstances. Last year, Lawrence Taylor’s Super Bowl XXV ring sold for $230,000 to an unknown buyer (New York Giants defensive end Osi Umenyiora had planned to buy the ring and return it to LT if he reached 500,000 followers on Twitter but fell short).

If the ring was, in fact, a gift, then Kraft would have been required to file a federal gift tax return. The value of the gift – at least $25,000 by all accounts – exceeded the annual exclusion for federal gift tax purposes. The exclusion in 2005 was $11,000 per person, meaning that Kraft could have handed out gifts worth $11,000 or less to any number of individuals without ever being subject to gift tax. However, to the extent that the gift to any single individual – like Putin – was more than the exclusion amount, Kraft would have to file a gift tax return and report the value of the gift. Even if he had “split gifts” that year with his spouse, Myra Kraft (she was still alive in 2005), the gift would have still been taxable. Splitting gifts allows you to share the exemption with your spouse – or borrow from your spouse’s exclusion, as the case might be, which still would have the result, in this case of a taxable gift since the combined exclusion would have been $22,000.

For most taxpayers, this sort of transaction would have been reportable but not taxable. That’s because the estate and gift tax system is unified: any amounts reported over the annual exclusion amount aren’t generally taxed immediately but rather they “chip away” at your lifetime exemption (currently $5,250,000). Once that exemption has been used up, gift tax is payable. When you’re dealing with a high net worth individual, such as Kraft, it wouldn’t be unusual to find that the exemption amount has already been used up with estate planning techniques and transfers – and gift tax would actually be payable.

But what about donative intent? Is a forced gift (assuming that the White House phone call actually happened) still a gift? According to the IRS, it is:

The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not.

And no, it doesn’t matter that Putin isn’t a U.S. citizen: the gift tax obligation is on the donor, not the recipient. Had Putin gifted the ring to Kraft, the results would have been very different; since Putin is not a U.S. taxpayer for federal gift tax purposes, that version of the transaction would not have even been reportable. But Kraft, as a U.S. citizen, is subject to federal gift tax, no matter the residency of the recipient.

It’s worth noting that you can’t deduct theft losses covered or reimbursed by insurance so if Kraft made a claim for insurance purposes (which would bolster his contention), he’d be barred from taking the deduction. If he were entitled to claim the loss, he would have needed to do so for the 2005 tax year: you usually take the deduction in the year the theft occurs.

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